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Brazil's economic and social progress between 2003 and 2014 lifted 29 million people out of poverty and inequality dropped significantly. Restoring fiscal sustainability is the most pressing economic challenge for Brazil.

Overview

Brazil experienced a period of economic and social progress between 2003 and 2014, when more than 29 million people left poverty and inequality declined significantly. The Gini coefficient dropped 6.6% (from 58.1 to 51.5) during that time. The income level of the poorest 40% of the population increased by an average of 7.1% (in real terms) between 2003 and 2014, compared to a 4.4% increase in income for the population as a whole. Since 2015, however, the pace of poverty and inequality reduction seems to have stagnated.

In the wake of a strong recession, Brazil has been going through a phase of highly depressed economic activity. The country's growth rate has been slowing since the beginning of the decade, from an annual growth rate of 4.5% (between 2006 and 2010) to 2.1% (between 2011 and 2014). There was a significant contraction in economic activity in 2015 and 2016, with the GDP dropping by 3.6% and 3.4% (respectively). The economic crisis was a result of falling commodity prices and the country's limited ability to carry out necessary fiscal reforms at all levels of government, thus undermining consumer and investor confidence. 2017 saw the beginning of a slow recovery in Brazil's economic activity, with 1.1% of GDP growth in 2017 and 2018 - largely because of a weak labor market, investments deferred by uncertainties about the elections and the truckers' general strike, which brought economic activities to a halt in May of 2018.

Restoring fiscal sustainability is the most pressing economic challenge for Brazil. To address the dynamics of unsustainable debt, the government has enacted Constitutional Amendment 95/2016, which limits the rise of public spending. This amendment imposes a fiscal adjustment of 4.1% of GDP through 2026 and stabilizes the debt at about 81.7% of GDP in 2023. Implementing this fiscal adjustment requires reducing the rigidity of public spending and revenue-earmarking mechanisms, which make more than 90% of the federal government's primary spending mandatory.

A comprehensive social security reform was sent to the Congress in February and has been approved by the lower house in August. The reform is expected to generate accumulated savings of 9 percent of GDP until 2030 and, combined with the spending rule, it would stabilize the general government gross debt at around 81.7 percent of GDP by 2023. This large-scale fiscal imbalance also affects subnational governments, whose inclusion in the reform is still on discussion. Their capacity to handle increasing wage and pension payments will be limited in the absence of reforms.

Brazil also needs to accelerate productivity growth and infrastructure development. The average income of Brazilian citizens has increased only 0.7% per year since the mid-1990s, which is one tenth of the rate in China and half the OECD average. This can be explained by a lack of Total Factor Productivity (TFP) growth between 1996 and 2015. Brazil's productivity problem can be attributed to the absence of an adequate business environment, distortions created by market fragmentation, several support programs for companies that have yet to yield any results, a market that is relatively closed to foreign trade and little domestic competition.

Brazil also features one of the lowest levels of infrastructure investment (2.1% of GDP) in comparison to its peers, and the quality of these investments is low. Accelerating productivity growth remains one of the country's top priorities, as the demographic transition comes to an end and the fiscal space for expansionary policies remains severely limited. Higher investments in infrastructure will also be required to ensure proper maintenance of existing infrastructure, by eliminating bottlenecks and expanding access to social services. This will require improving the government's planning capacity, improving the regulatory framework and leveraging private resources to finance investments.

A comprehensive diagnosis was produced by the Bank's technical team in July 2018, containing a summary of Brazil's primary challenges in economic and social development and pointing to a possible course of action to overcome them. This material is entitled Public Policy Notes and is available for consultation on the World Bank website. It covers the following topics: stabilization and fiscal adjustment, the tax system, intergovernmental fiscal issues, the pension reform, the State reform, productivity, credit markets, infrastructure, education, logistics & transportation, the labor market, ways to address the violence epidemic, climate change (NDC) and water resources management.

Last Updated: Oct 14, 2019

In 2016, the World Bank conducted a Systematic Country Diagnosis (Systematic Country Diagnostic / SCD) of Brazil, which sought to determine the main challenges that the country must face in its path towards inclusive and sustainable growth.

Based on SCD findings and the feedback gathered in the dissemination phase, a new Country Partnership Framework (CPF) has been created. This strategy is based on three pillars:

1) Fiscal sustainability and improved service delivery. This pillar focuses on fiscal adjustment support at the federal and subnational levels, including pension and social protection systems. It also addresses greater efficiency in public service delivery, especially in education and health.

2) Productivity growth and investments by the private sector. Objectives under this pillar relate to efforts to reduce the regulatory barriers that undermine competitiveness, as well as to correct distortions in the credit market and mobilize investments in infrastructure.

3) Inclusive and sustainable development. The objective here is to support Brazil's ambitious Nationally Defined Contribution (NDC) under the Paris Agreement by promoting global partnerships.

The upcoming Performance and Learning Review (PLR), to be delivered to the Board this FY, updates the Country Partnership Framework (CPF) with Brazil, covering FY18-23, aligning WBG support to the government priorities and the changing country context. The PLR will place a stronger focus on (i) fiscal sustainability (operations supporting state fiscal reforms; (ii) environment sustainability (operations supporting economic and environmental resilience in the Amazon and the Cerrado); (iii) infrastructure financing through strengthening institutional and regulatory frameworks and offering financing solutions that leverage private investments; and (iv) solving complex development challenges.

Last Updated: Oct 14, 2019

Brazil’s project portfolio spans several areas of the economy, civil society and the environment, and has had significant positive impacts on people's lives - including, especially, the most vulnerable. See below some of highlights of the World Bank's operations in Brazil.

Social inclusion

The Salvador Social project, approved in December 2017 with a budget of US$ 125 million, is a multi-sector project aimed at improving public services in the city of Salvador, with an emphasis on improving the efficiency of the health system, the quality of education and the effectiveness of social assistance

Education

The quality of education (as measured by international standardized learning tests) has improved over the past 15 years but remains behind countries comparable to Brazil. Another key challenge in Brazilian education is the fact that 4 out of every 10 youths aged 19 years had not finished high school in 2015, which has significant economic and social consequences. In addition, a significant share of children up to 3 years of age do not have access to early childhood education in Brazil.

In this context, the Bank engages with the education sector through investment projects that provide not only financial resources, but also global experience and knowledge in the field of ​​education. An education project is currently underway at the federal level (in all 27 states) and there are 11 multi-sector projects with education components at subnational levels (in multiple states and 4 municipalities) with a geographic focus on the Northeast region. The program also includes a rich array of analytical activities (including impact assessments) and technical assistance. These include (i) incorporated activities that complement the operational dialogue at the subnational level, and (ii) activities of broader interest at the federal level or among geographic entities. All activities are usually conducted in close collaboration with the government, think tanks and other partners.

A US$ 250 million Program for Results (PforR) has been in effect at the federal level since 2018 (with a budget of about US$ 1.3 billion) in support of an ambitious high school reform in Brazil, marking a critical and historical re-engagement with the Ministry of Education (MEC) at the national level. Key strategic objectives under the PforR include strengthening the capacity of state education secretariats to carry out the high school reform with regional, social, and gender equality, and ensure the continuity of the education policy in the transition between this government administration and the next (set to take office in January 2019). This project complements and bolsters many of the education engagements at the subnational level, with multiple state governments.

Health

The "Rio Grande do Norte Integrated Water Resources Management Project" has improved health services aimed at women and children by increasing the number of maternity wards and functional beds for newborns, improving the capacities of emergency and emergency health units in the state, building a new hospital focused on women's health and improving the ability to diagnose various diseases in two new laboratories.

To keep pace with the country's changing health profile, the World Bank has promoted health projects focused on chronic diseases, such as the "Piauí: Pillars of Growth and Social Inclusion Project", which expanded access to specialized diagnoses and treatments with 5 new treatment centers, covering half the state's population. The project aims to combat neglected diseases - such as Hansen's Disease, Chagas Disease, geohelmintiasis, leishmaniasis and tuberculosis.

Environment

Few countries have ecosystems as rich, diverse and critical to the well-being of their populations as Brazil. The country is home to one-third of the world’s tropical rain forests, twenty percent of the world’s freshwater supply and the Cerrado region - a tropical savannah with the highest rate of biodiversity in the world. A significant part of Brazil’s economy relies on the use of natural resources. Brazilian forests are also huge reservoirs of carbon and an important asset for maintaining the global climate balance.

In recent years, Brazil has improved its environmental laws and implemented several initiatives to combat climate change, with significant reductions in emissions. The Amazon Region Protected Areas (ARPA) program covers 60 million hectares of protected areas. It is estimated that the impact of ARPA alone will be enough to avoid the emission of 430 million tons of carbon by 2030. Another example is the Marine Protected Areas Program, a pioneering initiative set to triple the amount of marine protected areas in the coastal regions of Brazil. The Amazon Sustainable Landscapes Program (begun in June 2018) combines biodiversity protection with the recovery of degraded areas to ensure the connectivity of Amazonian ecosystems and support the sustainable development of the region.

In two years, the ABC Cerrado project recovered more than 84,000 hectares of degraded pastures in the Cerrado biome. The project is carried out jointly by Ministry of Agriculture, Embrapa and the National Service for Rural Apprenticeship (SENAR) and is financed by the Forest Investment Program (FIP), which has allocated US$ 10.6 million for implementation. Financial resources are managed by the World Bank (IBRD).

Primary actions include training and technical assistance in the technologies outlined in the ABC (Low Carbon Emission Agriculture) Plan. In addition to land recovery efforts, the actions focus on crop-livestock-forest integration and no-tillage and commercial forest farming. The plan includes the states of Goiás, Mato Grosso do Sul, Tocantins, Maranhão, Bahia, Piauí, Minas Gerais and the Federal District.

Water Resources Management

Brazil has suffered from increasingly frequent extreme weather events, such as floods and droughts. They increase the country's vulnerability to natural disasters and represent a disproportionately high threat to the livelihoods of the poor. Specifically, in the water sector - where climate events have a major impact - the Bank has been working to improve the country's capacity to better manage climate-related risks, by means of improved monitoring, analysis, planning, preparation, mitigation and response capacities. This support occurs at the national and subnational levels, and use many of the World Bank's offerings: financing, technical assistance and analytical studies.

Ongoing projects in the water sector incorporate these elements - such as the states of Pernambuco, Sergipe, Espírito Santo, São Paulo, and Paraíba, Ceara and Sao Paolo Metropolitan region. of Ceará. The World Bank has also provided technical assistance in the creation of the country's first Drought Monitor, a tool that enables the nine Brazilian semi-arid states to manage the phenomenon and mitigate the social and economic impacts of droughts.

The World Bank's support of sustainable development in Brazil aims to improve quality of life through integrated approaches to rural development, better local services in urban and rural areas and contributions to the efficient management of the country's natural resources.

As part of its commitment to helping improve the quality of life of poor rural populations, the World Bank's rural development projects include water resources management components, as in the case of the Pernambuco Water Sustainability Project, targeted at the populations of the Capibaribe river and the metropolitan region of Recife. The World Bank has also provided technical assistance in the formulation of the country's first Drought Monitor, a tool that enables the nine Brazilian semi-arid states to manage the phenomenon and mitigate the social and economic impacts of droughts.

Agriculture

The Bank's programs in agriculture and rural development support the states in promoting and / or strengthening productive economic activities that help increase the quality of life and income of family farmers and access to technical assistance and technological innovations aimed at the adoption of environmentally-sustainable practices and techniques and improved productivity. Innovative projects empower local communities in poor regions of the Northeast, as well as in other parts of the country (North, South-East and South), to invest in improving the quality of products and thereby increase access to institutional and private markets - mainly through collective channels, such as producer associations and cooperatives.

The projects also invest in complementary infrastructure to support agricultural activities, such as: agro-logistics, alternative energy sources, water supply and basic sanitation. One such example, the Productive Bahia Project has supported strategic investments in the various links of identified value chains, as well as in the formation of productive alliances between producers and private companies to enable the necessary investments to meet market requirements - both in terms of quality and quantity - while favoring experience above all else. This is the case of organic cocoa producers in southern Bahia. Potential buyers and visitors to the region can experience a day in the countryside and purchase almonds and several cocoa products (chocolate, nibs, etc.) when they visit production areas. This approach also benefits the recovery of the Atlantic Forest, by adopting agroforestry practices and systems and several other practices that increase production and strengthen climatic resilience.

Gender

The active promotion of gender equality is an essential component of the World Bank's strategy in Brazil and has expanded considerably since 2010. In 14 states, World Bank Group projects incorporate gender components such as actions against domestic violence and for the promotion of economic inclusion, improvement of health services and / or reduction of teen pregnancy.